Quantitative Easing Explained

here is a funny video explaining the FED stimulus and Quantitative easing.

Enjoy !

http://www.youtube.com/watch?v=PTUY16CkS-k

In Spain, Homes Are Taken but Debt Stays

This is an interesting article regarding debt and foreclosures in Spain. When properties are foreclosed in the United States the bank owns the property but that is it. However, in Spain when properties are foreclosed, you loose the property but you also still owe the bank what ever debt is incurred. Spain's unemployment rate reached the 20% and heavily in debt. Many people cannot afford houses anymore, and people are loosing the houses left and right approx 1.4 million people. Many people are have lost their houses and jobs and essentially in debt to banks for life.

What do you purpose the Spanish government do ?

"They say he now owes nearly 260,000 euros, almost $360,000, which includes about 77,000 euros to cover all court costs, including the bank’s, his lawyer said. He bought the apartment for less than that — about 220,000 euros"

Fed sticks with stimulus

The story here is twofold. Ben Bernanke, chairman of the Fed stands by the $600B stimulus package that has received a lot of heat recently. He uses fundamental economic theory to justify his actions, at least Keynesian economics. Someone like Friedman, however, would say that this money would be going to waste and would be unnecessary.

The story also talks about how Bernanke is frustrated with China not allowing their currency to appreciate is it likely should, without the regulation. This is one of the things that is bringing down the value of the dollar, which is a tough thing to handle in a somewhat down economy.

Irish officials acknowledge need for aid

Thursday, Irish official announced that they would be seeking aid from international sources.Ireland is reluctant to accept aid with strings attached. There would be substantial loans of up to tens of billions of euros. The books of Irish banks need to be checked before an exact amount. $60 billion euros might be sufficient to cover for financing needs for the next few years. Meanwhile, Greece is increasing deep cuts and increasing taxes in order to decrease the deficit.

Stocks Drop Amid Global Worries

The Fed's announcement of its $600B purchase of bonds a couple of weeks ago sent the stock market to the level before the Lehman Brothers debacle two years ago. Since then, the market has been relatively consistent. But today it plunged 178.47 points, below 11,000 which hadn't happened since mid-October. Investors are getting more sensitive to the debt crisis in Europe and potential actions in governments in developing countries to avert inflation. This goes on to show that many investors are still pretty skeptical of the recovery.

Greece's budget deficit worsens

After being re-calculated, Greece is unfortunately seeing a higher budget deficit from 13.6% to 15.4%. Due to this, the deficit cut has also been changed to 9.7% instead of the intended 7.8%.

Against worker's wishes, Athens is reducing the deficit through austerity measures.

"The Greek government is also being visited by EU and International Monetary Fund officials on Monday, who will decide whether to release more funds."

Their situation is so bad that they might have to request for more time before they start paying back aid money said the Prime Minister. The deficit was revised because there was a decrease in the calculated growth rate that year, an adjustment of social security funds, and by adding data from certain public sector bodies into the general government figures.

The only positive sign right now for Greece is that the contraction rate of the economy has declined.

Barnier Seeks to Protect Europe from Future Financial Crisis

Internal market commissioner Michel Barnier added three more steps in his plan to protect consumers in Europe from a future financial crisis, aimed at the investment and banking sectors, the main areas in which the United States has struggled. The steps include; an investor compensation schemes, an insurance compensation scheme, and a deposit guarantee scheme. The main goal is to provide confidence in the financial system in Europe. This would provide automatic payment in the case a financial institution cannot guarantee deposits up to 100,000 euro, amongst other things. The goal is not to protect consumers against free market take-overs by corporations, but rather to protect against fraud, neglegence, and incompetence.

How would you compare the effectiveness of this method to the current system that we have in the United States (or other countries)? With situations such as Bernie Madoff's Ponsi scheme in America, many of those investors were left with nothing, but regulations such as these in Europe protect consumers. The article gives little details that will be released later, but are these the right steps for Europe in reacting to the financial crisis in the U.S.?

Eurozone talks keep Irish crisis in focus

According to BBC News, Irish leaders continue to insist they do not need help from the European Union during their current financial crisis. Irish Prime Minister Brian Cowan insists that the government has "firm plans for sorting out the country's problems." However, there is still much speculation that the country will be forced to use EU bail-out funds and the head of European finance ministers claims the EU is ready should Ireland seek assistance. Recently market anxiety has spread to Spain and Portugal, which are also heavily indebted, and their is a high risk they will need to seek foreign aid. Ireland has promised the EU it will bring its deficit down from 12% to 3% of economic output by 2014. The new budget is likely to impose heavy cuts in spending or tax raises totaling 6 billion euros next year, however experts worry that budget cuts are likely to worsen Ireland's already deep recession.

Chinese Companies function a little differently

This article talks about how Chinese privatized companies are given monetary backing, support, and help to succeed for political reasons from the Chinese government, and it is in the best interest of the politicians to do so. To me, this sounds like soft budget constraints that we have studied this semester in class, that seem to be typically unsustainable. However, this article is saying that this government money is being used by the firms to help them grow and expand into the more global markets, owning 1/5 of the global stock-market, and soon expected to be the most large economy in the world.

When will voters care about the deficit?

We talk a lot on here about government's deficit, but recent research and polls have shown that the public in general don't pay that much attention. The author of the article argues this really is one of the issues that deserves a lot more attention and needs to be addressed properly. According to the article, "as the economy recovers over the next couple of years, the deficit will decline. It will only decline, however (and depending on what Congress does), to the nearly but maybe not quite sustainable range of 3% to 5% of GDP, and it will then begin rising again around mid-decade, thanks mostly to increasing entitlement spending. By the end of the decade, America's debt-to-GDP ratio will be at troublingly high levels. And at some point between now and then, probably in a couple of years when America's economic slack has largely tightened up, interest rates will rise. Depending on how high and how fast they rise, America's economy will experience something between a slight drag on growth and a serious crisis."
Americans are very concerned about the economy as a whole, which is a good thing. But the economy and the deficit, I think, are just two sides of the same coin. So, more attention is obviously warranted.

Caterpillar agrees to buy Bucyrus

This past week, Caterpillar Inc. agreed to buyout Bucyrus International for $7.6 billion. Caterpillar is the world's largest construction and mining equipment maker and is making a strong push to expand deep into foreign markets that are looking to develop. Since the economic crisis, Caterpillar has made drastic changes to improve profitability by cutting almost 30,000 workers. This aquisitition further widens the gap between Caterpillar and other competitors in the construction equipment making industry. Do you think Caterpillar's underlying goal is to monopolize the industry by continuing to acquire companies and further expand into developing foreign markets??

The Demographics of Globalisation

This article explores global interdependence and savings as it relates to the demographics of key economies. The author focuses specifically on China as the current source for global savings. As a middle-aged economy, China is a natural for high savings (which the US as a middle aged economy should also be, by the way). Young and aging economies traditionally tend to deficit spend. The concern is that China is slowly becoming an aging economy as its policies limit the number of new workers introduced. China's extensive growth strategy is already showing its limits. The author uses this to explain in part China's "seemingly selfish" currency manipulations as a self protection strategy as they face the limits of their demographics.

Bush tax cuts: What nobody is talking about

The debate on whether or not to let the Bush tax cut expire is still up in the air. One question that pops up in everyone mind is that how can we have tax rates and deficit to be lower at the same time? We need tax rates to be higher so we can pay up the debt and at the same time, remains enough government funding for entitlement (social security, medicare, medicaid) and domestic discretionary programs (health research, education, national parks). Some argue that people can't afford higher tax rate at the moment but the fact is that since the Bush tax cut was implemented it did not prevent American corporation from shipping millions of American jobs to China. So what is the solution?

Fed May Need to Increase Rates Even with Elevated Unemployment

Federal Reserve Bank of Richmond President Jeffrey Lacker believes that the Fed may need to tighten monetary policy, even with unemployment levels as high as they are. He fears high inflation rates similar to those in the 1970s. In the late 1960s, the Fed fought high unemployment rates with looser monetary policy. The result was inflation rates in the 1970s topping at 14%. Lacker doesn't see deflation as a major risk and suggests that the Fed may do more harm than help by keeping interest rates so low.

Japan's Economy Shows Strong Growth

Japan's economy has shown strong growth and has been growing at annual rate of 3.9% in the third quarter. Just recently Japan has been in a recession which is said to be as worse as the recession after World War II. Much of this growth is due to heavy consumer spending due to government incentives which are currently coming to end. So people are trying to benefit as much as the can before its to late. Deflation has also helped in the growth as prices have decreased. Private consumption which accounts for 60% of the economy increased 1.1% which was helped by government incentives to fuel effiecient cars and energy. This growth however is suggested to slow down over the next three months as these goverment incentives will come to an end. Although there is growth in the overall economy, Japan's labor market still is rather stagnant with jobs not being created as quickly as expected. Do you think Japan will be able to keep growing at this pace or will they slump back into a possible double dip recession?

French Cabinet reshuffle puts conservatives at top

After major reassignments last week, French President Nicolas Sarkozy has had to reshuffle his cabinet. The reshuffle aims at pleasing more conservative followers in leu of the 2010 elections. Sarkozy goal is to bring leftist, centrists and others to make a unique governing body.

"Sarkozy had been expected for months to make changes to his government before 2012 presidential elections. But the reshuffle turned into a highly unusual 24-hour marathon marked by clearly tough negotiations."

There have been many criticisms about the shuffle is that people believe he is just doing it so he can have a favorable outlook for the upcoming elections. Overall there 16 ministers lost their jobs.

Opinions?